As shuttered South Florida hotels lose revenue and lay off employees due to coronavirus, they face debt payments that may be difficult to restructure.
A $59 million commercial mortgage-backed securities loan for the 311-room DoubleTree Resort by Hilton Hollywood Beach at 4000 South Ocean Drive is the latest loan to enter special servicing. The loan has a balance of $55.8 million and has been delinquent for less than a month, according to the data provider Trepp.
The property is owned by Williamsburg, Virginia,-based Sotherly Hotels. It has 10,000 square feet of meeting space, a resort-style pool, a bar and seafood restaurant. The loan is a refinancing originated in 2015.
Dave Folsom, president & CEO of Sotherly Hotels, did not immediately return a request for comment.
CMBS loans are secured by a mortgage on a commercial real estate property. The loan is accumulated into a pool of loans and sold as bonds to investors. When the borrower misses a payment or requests modifications, CMBS loans are taken over by a third-party firm known as a “special servicer.” By entering special servicing, the CMBS loan can be reworked or restructured, or the special servicer can find another operator to take over the property. Industry experts say that modifying CMBS loans can take months or years, and during that time the borrower cannot refinance or take on additional debt.
CMBS loans are often deemed riskier than conventional loans because of the difficulty in modifying them due to obligations that the borrower has with bondholders.
South Florida’s hotel industry has $4.2 billion in CMBS debt, according to Trepp.
Last week, a $975 million CMBS loan for Jeffrey Soffer’s Fontainebleau Miami Beach entered special servicing. The loan is the largest CMBS hotel loan in South Florida.
Brett Mufson, president of Fontainebleau Development, said the hotel is in talks with its lenders, bondholders and servicers regarding modifying the hotel’s loan documents. He said the loan is not in default on its payments.
For weeks, South Florida’s hotels have been suffering from the impact of coronavirus.
Broward County ordered all non-essential businesses to shut down effective March 23. With this order, hotels were not allowed to accept new reservations with the exception of “essential lodgers,” such as first responders or healthcare workers. Since then, hotels have laid off thousands of employees.
On Tuesday, Visit Florida President and CEO Dana Young said on a conference call with members of the state’s re-opening task force that statewide hotel revenue was down more than $1.6 billion between March 1 and April 11 compared to the same period last year.